Attainment Discrepancy and New Geographic Market Entry: The Moderating Roles of Vertical Pay Disparity and Horizontal Pay Dispersion

• Date: 01 December 2019
• Author: Elizabeth Lim
• Published date: 01 December 2019
• DOI: http://doi.org/10.1111/joms.12430

© 2018 Society for the Adv ancement of Managment St udies and John Wiley & Son s, Ltd.

Attainment Discrepancy and New Geographic Market

Entry: The Moderating Roles of Vertical Pay Disparity

and Horizontal Pay Dispersion

Elizabeth Lim

Georgia State University

ABST RACT Studies in the behav ioural strategy literatur e have examined the inf luence of

attainment d iscrepancy on new geographic market entry w ith inconclusive results. We clari-

fied the relat ionship between attainment dis crepancy and new geographic market entry by

considering the moderat ing effects of manageria l pay gaps with concentration on vertical pay

disparit y and horizontal pay dispersion. The fra mework also contributes to our understandin g

of tournament theory a nd social comparison theory by identi fying specified per formance

contexts under which ty pes of pay gaps conform to or violate theoretical pred ictions. Empirical

analyses bas ed on a panel data of Standard and Poor’s (S&P) 500 f irms from 1996 to 2006

showed that our hypotheses a re largely supported.

Keywo rds: attain ment discrepa ncy, horizontal pay di spersion, new geographic market entry,

vertical pay d isparity

INTRODUCTION

Strategy studies i n the behavioral literature have examined the relationship between

attainment discrepancy (i.e., difference between current performance and the aspira-

tion level; Lant, 1992) and new geographic market entry and found inconclusive results

(Chang, 1996; Lin, 2014; Ref and Shapira, 2017).1 For instance, Chang (1996) did not

find support for performance below the as piration level. Lin (2014) found support for her

theory that performance below the aspiration level increases geographic scope, but did

not find conclusive result for performance above the aspirat ion level. Ref and Shapira

(2017) found inverted U-shaped relationships between performance both below and

above the aspiration level and new market entry. We suggest this empirical a mbiguity

Journal of Man agement Studi es 56:8 December 2019

doi:10. 1111/j oms .124 30

Address for re prints: Elizabet h Lim, Associate Profes sor of Management, Georg ia State University, J Mack

Robinson College of Bu siness, 35 Broad Street, Suit e 1009, At lanta, GA 30303, USA (elim@ gsu.edu).

160 6 E. Lim

© 2018 Society for the Adv ancement of Management Stud ies and John Wiley & Son s, Ltd.

can be attributed to a lack of consideration of managerial pay gaps (i.e., pay differences

among top managers). If effective implementation of new geographic market entr y re-

quires collective mana gerial efforts, pay gaps could induce intrateam dynamics and so-

cial interactions of top mana gers that inf luence its strategic success (March a nd Simon,

1958/1993; Simon, 1955). Although March and Simon’s (1958/1993) Organizations rec-

ognizes monetary rewards may inf luence behaviours, we are unaware of studies that

examine the moderating influences of pay gaps on the relationship bet ween attainment

discrepancy and corporate change.

Our goal is to shed light on the empirical contradictions in the behavioural strategy lit-

erature regarding the relationship between attainment discrepancy and new geographic

market entry (hereafter known as new market entry). We conceptualize new market entry

as a potentially value-enhancing corporate change involving strategic moves into new

geographic markets that carry risk of financial uncertainty for the entire firm due to its

unpredictable payoffs and potential career risk for top managers proposing the change

(see Alessandri and Seth, 2014; Gande et al., 2009; Ref and Shapira, 2017). Consistent

with predictions in Organizations, we posit in our baseline theory that new market entry

increases as performance falls below aspiration (negative attainment discrepancy), but

decreases as performance increases above aspiration (positive attainment discrepancy).

We further propose that pay gaps, particularly, vertical pay disparity and horizontal

pay dispersion, are critical for assessing whether managers will collaborate and cooper-

ate to enter into new markets successfully because top managers are likely to compare

their pay with the firm’s CEO and peer managers (Shaw, 2014). Vertical pay disparity is

defined as pay differences across hierarchical ranks between the CEO and other top ex-

ecutives (Siegel and Hambrick, 2005), and could facilitate firm outcomes (Lazear, 1989).

Horizontal pay dispersion reflects pay differences within similar hierarchy among top

executives (Milkovich and Newman, 1996), and could negate firm outcomes (Fredrickson

et al., 2010). We postulate that during negative and positive attainment discrepancies

high vertical pay disparity strengthens new market entry due to the attractiveness in

claiming a bigger tournament prize linked to a wider pay gap, but horizontal pay dis-

persion weakens new market entry as high pay inequity induces sabotaging, behavioural

disintegration, and dysfunctional team dynamics, creating challenges for entering into

new markets.

Our research offers two key contributions. First, following the publication of

Organizations, empirical studies have ignored the theoretical development of managerial

pay gaps such as vertical pay disparity and horizontal pay dispersion when considering

corporate change decisions. An investigation of pay gaps rather than pay levels and

pay mixes as moderating variables, thus, throws light on the equivocal findings in the

behavioural literature and extends knowledge by underscoring the importance of when

and why productive or disruptive intrateam behaviours in specified performance do-

mains influence new market entry. Second, we respond to Shaw’s (2014, p. 534) call for

‘studies that compare the effects of horizontal and vertical consequences of dispersion

[because] the causal pathways for the two types of structures are different’. While we

find vertical pay disparity facilitates competition, which increases new market entry in

the positive attainment discrepancy (consistent with tournament theory), this premise